Digital economy and economic competitive pressure on local governments: Evidence from China

For decades, fiscal decentralization and gross domestic product growth targeting have resulted in fierce economic competition among local governments in China, putting tremendous economic competitive pressure on them. The latter has serious social and economic implications and is a major issue for policymakers. This study analyzes data from China's 30 provinces for 2011–2021. It demonstrates that digital economic development could considerably reduce economic, competitive pressure on local governments, with trade openness and entrepreneurial dynamism serving as impact mechanisms. This study also found that the alleviating effects are more pronounced in regions with a poor innovation environment, a less developed economy, or lagging human resources. These findings emphasize the important role of the digital economy in increasing regional competitiveness and reducing regional disparities. • Chinese local governments face fierce economic competition and pressure. • Digital economic development may reduce competitive pressure on local governments. • Trade openness and entrepreneurial dynamism act as the channels of impacts. • Pronounced impacts are observed in economically less developed regions. • Strong impacts also occur in regions with low innovation or human resources.